Commercial Bank
What is a Commercial Bank?
The term commercial bank is often used to distinguish a “normal” bank from an investment bank. The term can also be used to refer to the branch of a bank that deals primarily with companies and their banking needs. So, a commercial bank is one which performs all regular bank transactions for both companies and regular consumers.
The Functions of a Commercial Bank
Commercial banks provide a number of services to both regular, retail customers and companies that choose to transact their business there.
1. They accept business and personal deposits.
2. They provide business and personal checks.
3. They provide money lending services.
4. They provide safety deposit boxes.
5. They provide account documentation and (sometimes) letters of credit.
Types of Loans Provided by Commercial Banks
There are three main types of loans that traditional commercial banks provide. The first is a secured loan. These loans can be used for nearly anything and are often obtained by putting down some sort of collateral to secure the loan.
The second is type of loan is a mortgage loan. These loans are ones which allow customers to purchase a home or property. In the past, commercial banks were not very keen to take on mortgage loans, but that has changed. Today mortgage loans are very common part of commercial banks. The commercial banks obtain mortgage loans either by funding the loan themselves or by purchasing the loan from other lenders.
Some banks also offer unsecured loans. Unlike secured loans, unsecured loans can be obtained without any collateral. The downside of unsecured loans is that the interest rate will often be higher than those accompanying a secure loan.
Commercial banks can also provide some loans to companies. The loans provided to businesses are generally for the purchase of supplies or for the financing of payroll. If the business needs funds for a reorganization of their operations they would have to seek the services of an investment bank rather than a commercial bank.
